In a less than favorable report, this morning, the Office of National Statistics (ONS) released the data on inflation. The Consumer Prices Index (CPI) had been expected to drop to at least 8.4%, but it remained at 8.7% for May, the same as was reported in April. While inflation has dropped from the peak level of 11.1% reported in October 2022, it remains over four times the target rate of 2.0% set by the Bank of England. The higher than expected inflation level adds more pressure to the Monetary Policy Committee (MPC) as they seek to balance the threat of inflation and the financial woes of households facing higher mortgage payments.

Tomorrow, the MPC will meet for their scheduled June meeting and the consensus is for another increase to the standard base interest rate. It will be the thirteenth consecutive MPC meeting that resulted in an increase. For thousands of households paying on mortgages, it will mean yet another financial strain on their budget.

Homeowners coming to the end of their mortgage term could be facing dire affordability issues. Many will have secured their mortgage when the base rate was near zero at 0.1%. During the pandemic, the MPC had lowered the rate to an all-time historic low. The first of the current twelve consecutive rate hikes began in December 2021. The first increase took the base rate to 0.25%. At more than double, it was considered to be a wakeup call to homeowners to remortgage sooner rather than later.

Now, the base rate sits at 4.5%. On Thursday, the MPC is expected to increase the rate to at least 4.75%, and there will likely be members voting for a stronger hit against inflation and vote for a 0.50% increase to 5.0%. Most experts believe the majority vote will restrain from the stronger increase and prevail at only a 0.25% hike.

However, there will not be a meeting in July, and rather than see inflation perhaps remain steady into July, the MPC could take more aggressive action and vote for a 0.50% taking the rate to 5.0%.

The rate hike expected in the June meeting will not likely be the last. Only weeks ago, inflation was expected to fall quicker and the peak rate for the base rate was forecasted at 4.8%. In the last few weeks, the forecast has changed to a peak rate of 5.5%. This morning, many are adjusting their expectations of the base rate peak reaching 5.75%.

Homeowners are still encouraged to shop for a remortgage. There are savings to be found even if the historic offered rates are no longer available that they once shopped for in 2021. Getting a fixed rate remortgage now shields the homeowner from the expected rate hikes to come, and more so it saves the homeowner from being moved to their lender’s standard variable rate (SVR) which most certainly would be a higher-level rate than those found with a remortgage.

Homeowners should not expect rates to decline simply to make way for more affordable rates for mortgages and remortgages. Not only will the MPC not likely be cutting the base rate any time soon, but lenders either. After the last MPC meeting in May, many lenders held off increasing their rate offerings or pulling their lower rate offers for a few weeks. However, as expectations of a stubborn inflation rate holding on, lenders in response to their higher risk in lending began to pull their lower rate offerings and replacing them with higher rate offers. Some lenders went so far as to pull their offers and not put new ones out. 

Lending is less competitive now and tightening. Interest rates are expected to not only climb tomorrow, but possibly into the months ahead. If the rate is increased only by 0.25% to 4.75% and the peak is forecasted to 5.75%, then certainly there are more rate hikes to come and for homeowners to avoid.

Shopping for a remortgage is certainly a strong strategy for those coming to the end of their mortgage term, those that already have and were moved to their lender’s SVR, and even those not yet close to their term ending but would rather remortgage early that await higher rate choices later when their term would expire.